Three pieces of news on developments in the eurozone come at the same time, together indicating potential destabilisation.
The Bundesbank, Germany’s central bank, has announced downgraded growth estimates showing a return to recession with a progressive decline in the country’s economy over this year and next.
The bank’s estimate for 2012-13 had been for 1% growth – now reduced to 0.7%; with the estimate for 2013-14 down to just above half the 2012-13 figure, at 0.4%.
An indication of the picture behind these growth revisions is that the bank’s previous estimate for 2013-14 had been for a substantial lift in growth over 2012-13 – at 1.6% – not for deep further retraction as the current estimates predict.
The Bundesbank has accounted for the return to recession by pointing to the crisis in the eurozone and the unstable economies that continue to threaten it.
Then in Italy, renegade former premier, Silvio Berlusconi, has withdrawn his People of Freedom [PDL] party’s support from the country’s current non-elected government of economists under Mario Monti.
The group was put in charge to bring down the serious debt that leaves Italy as one of a group of eurozone members whose need for a bail out can only be a matter of time.
Berlusconi says that Monti’s austerity measures have done damage to Italy and that he will run for office himself, yet again, next year.
In response, Monti has said that he will step down but will attempt first to get a financial stability bill and a budget through the Italian parliament.
The prospect of the return to power of the 76 year old Berlusconi cannot be a reassuring one. He resigned just over a year ago because of the state to which his regime had brought the Italian economy – which Mario Monti was put in to address. He is also generally thought to be motivated to try to return to power to protect his own business interests through what is coming down the line.
These two developments show the very engine of the eurozone, the stout German economy – effectively the key paymaster of the entire enterprise, weakening significantly; alongside a move back to the erraticism of Berlusconi in one of the eurozone largest economies whose potential failure is of widespread concern.
At the same time, the President of the European Central Bank, Mario Draghi, has made it known that the ECB expects the entire eurozone to remain in recession until the end of 2013.
In his statement on 6th December, Draghi said: ‘The Governing Council continues to see downside risks to the economic outlook for the euro area. These are mainly related to uncertainties about the resolution of sovereign debt and governance issues in the euro area [Ed: our emphasis], geopolitical issues and fiscal policy decisions in the United States possibly dampening sentiment for longer than currently assumed and delaying further the recovery of private investment, employment and consumption.’
This amalgam of negative signals is, of course a warning to the UK, for whom the EU is a major market – but the good news here is that America – another of our major export markets – is showing real signs of revival, with its November 2012 unemployment figures falling to a level not experienced in that country since December 2008 [7.7%].